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Public-Employee Unions Gone Wild (Their excessive demands are squeezing local governments)
National Review ^ | 04/27/2012 | Patrick Brennan

Posted on 04/27/2012 6:18:01 AM PDT by SeekAndFind

Terry List, a teacher in Saginaw Township, Mich., has a depressing lesson for her students: “I would not recommend to my pupils to become a teacher in Michigan.”

What’s discouraging her? A proposed pension-reform bill in Michigan would derail her plans to retire — at age 47.

After these rapacious reforms, List would have to work another 16 years, to age 63, in order to earn her retiree health-care benefits. “I understand we have to tighten our belts,” she laments, “but we don’t have to use a tourniquet and cut off the blood supply entirely.” Under the reforms, such a tourniquet means she could still retire now and have a guaranteed income for the rest of her life, but she’d have to pay for her own health care until age 65 — like, you know, most Americans.

Ninety percent of public employees in the United States enjoy defined-benefit pension plans, meaning they will receive a guaranteed income, and usually health insurance, until death. These benefits are prohibitively expensive, and more so when they are tied to retirement ages that are atypically low. Given rising life expectancies, we could see a raft of public pensioners spending more years collecting retirement benefits than they spent working their government jobs, and in fact this isn’t uncommon already.

Thanks to the strength of teachers’ unions, the average retirement age for a public-school teacher in America is 59. In California, the oldest age at which some categories of state and local employees can retire is 60, though for most the age is significantly lower. It’s hard to generalize, because some unions have pillaged far more than others. For a sense of how extreme the demands of some can be, one more example will have to suffice.

Until recently, employees of the Massachusetts Bay Transportation Authority enjoyed “23 and out” pensions. No matter when they began their careers, they could collect nearly full pensions after 23 years on the job. (That has been raised to the a punishing figure of 25 years, and now with a minimum age of 55 before they can collect.) Perhaps the most famous member of the organization that negotiated these benefits, the Boston Carmen’s Union, is Patrick Bulger, son of longtime Massachusetts state-senate president Billy Bulger. The younger Bulger retired from the Carmen’s Union at 43 and began collecting an annual pension of $41,000. Plus cost-of-living adjustments. For the rest of his life.

It’s hard to justify such benefits when the rest of America relies on 401(k)s, Social Security, and Medicare, making their effective retirement age, on average, 63 — and soon to rise. Public employees retire still very much in their working years. Even though they’re guaranteed financial security for life, some of them in “retirement” go on to lucrative jobs in the private sector — or, more disturbingly, back in the public sector. Take retired MBTA manager Michael Mulhern, age 48, who now enjoys a $130,000-a-year pension — and earns $225,000 a year as executive director of the MBTA’s retirement fund.

Of course, the case can be made that some public employees — police and firefighters — need and deserve to retire at a relatively earlier age. Public-safety employees were often the first to win generous pensions and lower retirement ages.

The largesse has quickly spread to the unions of other government employees. In Illinois and California, almost one in three state employees are now on “public safety” retirement schedules. Public-safety rules often extend, for instance, to any “law enforcement” employee — including, say, all employees of public defenders’ offices. In New York City, the level of benefits for public-safety workers was soon enough extended to all uniformed employees of the city, so that sanitation workers fall under the same “20 and out” policy as do officers of the NYPD.

This absurdity of extending so-called hazard schedules to professions that just aren’t hazardous has grown to Hellenic proportions.Greece’s hairdressers retire from their work with dangerous chemicals at age 53. Is it any less ridiculous that New York’s sanitation workers receive their pensions after all of 20 years?

But rock-bottom retirement ages aren’t just huge burdens on the state and wasteful privileges for certain workers. They also epitomize the perverse nature of public-sector collective bargaining, which tends to be exacerbated by a lot of optimistic projections, back-loaded spending, and ill-conceived promises.

Imagine the basic bargaining game. A public union goes to the table, asking for increased compensation. The government usually realizes that pay increases are unaffordable or fiscally irresponsible, and does not want to provide them.

So the two parties reach a compromise: Instead of increasing current pay, increase future compensation by a present value roughly equivalent to what the union wanted now. But because governments (though they have improved in recent years) operate by optimistic standards or none at all, they don’t fairly evaluate the costs of what they’ve just promised. The more unfairly they evaluate the compensation, the more the union gets.

Agreement on early retirement works for both sides. It’s psychologically less costly. For state and local government officials, increasing salaries, retirement benefits, or health-care benefits involves very obvious financial commitments, whether present or future. Lowering the retirement age, especially for new employees, does not, though it does no less to immanentize the fiscal equivalent of doomsday. Furthermore, lax accounting standards allow a government to ignore or distort just how big the burdens are that youthful retirees will impose — something it couldn’t do if it promised benefits in the here and now rather than deferring them.

Moreover, much of the cost that governments incur when they grant early retirement comes from health-care benefits, which are easy to promise but costly to deliver. Insuring the elderly can mean that a retiree already receiving a pension that amounts to 80 percent of his peak earnings in wages could easily be costing his public employer more than he ever did as a full-time worker.

In a nation where everyone must rely on Medicare, there’s no good reason for retirees to be provided health-insurance benefits, which shift the burden of an undersized risk pool and inflated tax-exempt benefits onto local governments and taxpayers. But these benefits are important for the unions, because otherwise employees couldn’t afford to retire before 65, when they become eligible for Medicare. And so public-safety employees whose retirement ages have always been much lower than 65 require extremely expensive health-care benefits in order to make their early-age pensions worthwhile. This practice spread as hazard schedules were applied to other professions until, eventually, it became a common retirement benefit.

As a 2007 GAO report explains, rising health-care costs make these promises extremely difficult, almost impossible, to account for — when state and local governments even bother. They usually don’t. Few still rely on pay-as-you-go budgeting for pensions, though it remains common for health care.

By almost every measure, public-sector unions have managed to extract excessive levels of retirement benefits from governments, whose obligations have been vastly increased by the early ages at which the benefits can be claimed. That the benefits enjoyed by public employees already are more generous than anything the average American knows, and that they can enjoy them at an age when the average American is still working, isn’t just adding insult to injury. It’s adding kerosene to tinder.

— Patrick Brennan is the 2011 William F. Buckley Fellow at National Review.


TOPICS: Business/Economy; Culture/Society; News/Current Events
KEYWORDS: pensions; publicunion; unions

1 posted on 04/27/2012 6:18:06 AM PDT by SeekAndFind
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To: SeekAndFind

Maggie Thatcher was right about socialism and other peoples’ money.


2 posted on 04/27/2012 6:22:18 AM PDT by lurk
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To: SeekAndFind

This is where the global economic collapse starts.

Local [union] government employees’ pensions bankrupting cities, which demand to be bailed out, and it goes up the chain.


3 posted on 04/27/2012 6:23:56 AM PDT by MrB (The difference between a Humanist and a Satanist - the latter knows whom he's working for)
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To: SeekAndFind

Public employee Unions by nature, are against the principles of a Representative democracy.


4 posted on 04/27/2012 6:26:52 AM PDT by 11th Commandment (http://www.thirty-thousand.org/)
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To: SeekAndFind

My public employee union (federal) does not have collective bargaining for wages and benefits, and that is how it should be.

We work for the taxpayer. If the taxpayer decides to tighten things up via their representatives in Congress, so be it.

My coworkers don’t quite see it that way, though. They constantly bombard me with articles about planned changes to our pay and retirement, trying to get me riled up. Doesn’t work.


5 posted on 04/27/2012 6:33:57 AM PDT by SandyInSeattle (Never borrow batteries out of your smoke alarm!)
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To: SandyInSeattle

I’m with you, Sandy. I retired from the federal government two years ago and am quite satisfied with my pension and other retiree benefits. But you’re right — if Congress wants to change the pension calculations for future federal retirees, it has every right to do so.

It’s worth noting that retirement benefits for federal employees are completely different from retirement benefits for state and local employees. Federal retirees’ benefits are funded by the federal government, which has the ability to simply print more money if necessary in order to ensure those commitments are funded. State and local governments don’t have that capability — they have to raise taxes or cut spending in other areas in order to satisfy their pension obligations. Some localities and states are in a difficult fiscal position and can’t raise taxes enough or cut other line-items enough to pay their full pension obligations.

Which is why I’m so glad I’m a federal, and not a state or local, retiree. I’m sure you are too!


6 posted on 04/27/2012 6:49:28 AM PDT by Poundstone (A recent Federal retiree and proud of it!)
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To: Poundstone
Private sector employee here. I use to have a pension and %100 employer funded health care. That was decades ago and is long gone now. I give the government employee pensions and health benefits another 10 years tops until they are ended. Just does not make fiscal sense. Look what it did to GM. The federal government can't print enough money fast enough to keep up with the coming tidal wave. Pensions use to be an award for surviving long enough in a very dangerous job. It was never meant to be entitlement.
7 posted on 04/27/2012 7:09:07 AM PDT by outpostinmass2
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To: Poundstone
if Congress wants to change the pension calculations for future federal retirees, it has every right to do so.

They can change it for current ones, too pal. And I for one hope they do. What Congress giveth, Congress can taketh away. And there's no group that more richly deserves having things taken from them than Federal employees.

8 posted on 04/27/2012 7:22:41 AM PDT by Lurker (The avalanche has begun. The pebbles no longer have a vote.)
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To: outpostinmass2

Huh? Sorry, public employee pensions aren’t going away.

Although many state and local employees may see cuts in their retirement packages and/or increased contribution requirements.


9 posted on 04/27/2012 7:23:46 AM PDT by Poundstone (A recent Federal retiree and proud of it!)
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To: Poundstone
The pensions will be gone just like the private sector. People will be grandfathered and there will be a cut-off date and the pension fund will be capped. People will have their pension converted to a 401-3B. The only government employees who will retain their pensions are military, fire and law-enforcement. If the private sector can't afford pensions then the government certainly can't afford pensions. The golden goose is cooked, the United States is bankrupt.
10 posted on 04/27/2012 7:33:14 AM PDT by outpostinmass2
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To: SeekAndFind

The entire reason the transit system in Pittsburgh does not work is that more than half of the budget goes to paying pensions for their workers to retire and sit home starting in their early 50’s.


11 posted on 04/27/2012 8:20:50 AM PDT by Buckeye McFrog
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To: Buckeye McFrog
Early 50’s??? Pittsburgh is draconian. The MBTA lets one retire in their early 40’s. It was just recently increased to 55 but only for new highers, which means nothing will change for another 25 years.
12 posted on 04/27/2012 8:23:48 AM PDT by outpostinmass2
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To: outpostinmass2

“Pensions use to be an award for surviving long enough in a very dangerous job. It was never meant to be entitlement.”

Actually if you truly believe in a market economy, pension are part of the compensation for labor, not an award for surviving. A person agrees to join a company and accept a compensation package that includes base pay and benefits (health care and pension) in return for labor. The pension is in reality a deferral of current income. Instead of paying the worker a higher base wage, the employer agrees to hold the income and pay it at a later date (in retirement).

In the private sector most defined pension benefit pension plans have been replaced by 401K’s with some or no employer match usually at a much lower cost to the employee. Essentially, by eliminating defined benefit pension plans and increasing the employee paid portion of medical care plans, employers in the US have been reducing compensation. The employee earns less in terms of benefits for doing the same job.

The aggregate result of these actions by individual employers is to lower the standard of living of workers in the private sector. It is truly the consequence of globalization. The elimination of tariffs and quotas over the past 20 years has forced American labor to compete with subsidized and lower cost labor in other parts of the world. The consequence is a declining standard of living. Employers have found it easier to lower compensation by reducing and eliminating benefits instead of lower the wage. Other actions include reducing headcount through outsourcing labor or laying off highly compensated older workers and replacing them with lower cost contract or younger workers.

In some instances employers have canceled pension plans and in the most onerous cases have gone through bankruptcy to shed these pension obligations. In these instances the employee is truly taken advantage of. The employee agreed to provide labor for wages and benefits including deferred wages in the form of pension. If the company is permitted to renege on its pension obligations it has consumed and benefited from the labor of the worker without fully compensating the employee.

At one point in our history when tariffs were higher, employers had to offer benefits such as pensions to attract the best workers. With the US market now open to cheap imports from around the world, private sector employers no longer have to offer generous benefit packages to attract labor in the US. This is also a dimension of capitalism enabled by the shift in government tariff policy.

Are we as a nation better off with the wide open markets and declining standards of living of the current century or higher tariffs and higher compensation structures of most of the second half of the 20th century?


13 posted on 04/27/2012 9:55:38 AM PDT by Soul of the South (When times are tough the tough get going.)
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To: Soul of the South
Pensions for non-hazardous work is actually a recent phenomenon, mostly started during WWII and essentially lasted for two generations with the exception of government employees. This was mostly instituted because of pay cost controls by the government. Before WWII pensions were a reward granted to the few who made it to retirement age in a hazardous job and who usually died only after a hand full of years collecting their pension.

Pensions have been mostly ended in the private sector because they are unaffordable. They exist in public sector because governments have the ability to raise taxes and or print more money to cover the cost of the pension. Nevertheless pensions they are still unaffordable whether public or private.

The private sector for the most part does not receive retirement health benefits nor defined pensions. Thus I see no justification on increasing taxes in order to pay for benefits that the taxpaying private sector does not receive. If the 401K is good enough for the taxpayer then it is good enough for the government worker.

As far as my belief in the market economy, I did not witness one person leave my company when the defined pension was capped and transferred to a 401K. The market has spoken.

14 posted on 04/27/2012 10:31:40 AM PDT by outpostinmass2
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To: SeekAndFind
Public-Employee Unions Gone Wild (Their excessive demands are squeezing local governments)

No, it's squeezing, choking off and gang raping the local private sector tax payers.

We now are working for thousands of these local fiefdoms and local overlords.

Years ago, they were considered "Public Servants", now the private sector works for them, to pay their tax paid opulent wages, benefits, lottery style retirement pensions, extravagant buildings, offices etc.

We were clearly warned about this by the founders of America.

15 posted on 04/27/2012 10:40:24 AM PDT by dragnet2 (Diversion and evasion are tools of deceit)
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To: outpostinmass2
Private sector employee here. I use to have a pension and %100 employer funded health care. That was decades ago and is long gone now. I give the government employee pensions and health benefits another 10 years tops until they are ended.

Everyone in the private sector has been lied to, and economically gang raped by these local government fiefdoms and overlords. While private sector has been strafed and forced to pay so government workers can receive the very best healthcare, rewards, perks, and lottery style retirement pension.

The utter contempt for government at all levels, continues to grow.

I guarantee you, this will not end well for these bloated tax supported, unionized government employees.

This house of cards will come down.

16 posted on 04/27/2012 10:52:30 AM PDT by dragnet2 (Diversion and evasion are tools of deceit)
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